Denver Real Estate Has Never Been More Expensive

February 15, 2023

Like Ever.  Full Stop.  Yes, You Heard That Right:

Denver Real Estate Has Never Been More Expensive.  

There are indices used to compare the cost of Real Estate over time in a given city like Denver.  The most well-known and respected is the Case Shiller index.  Instead of merely looking at averages over time, this index compares sales of the same house over time, adjusted for things like upgrades.  It’s called the “repeat sales pricing technique.”

Below is the Case Shiller Home Price Index for Denver.  Note the 2007-2010 time frame, and how much less expensive home prices were then in comparison to 2022.

Let’s apply this to a hypothetical house in Denver.  Let’s say that there is house 1234 Broncos Street that sold for $300,000 in the year 2010.  In July 2008, the home price index is 130 so that same house would have sold for $390,000.  The same index peaks at 308 in June 2022, which means 1234 Broncos Street would have had a value of $924,000.  

But wait, money is worth less now, meaning, you need more of it to buy things.  This index above shows us nominal prices.  It’s easy to see that nominal prices have never been higher- that’s an easy one.  

But we can also adjust for inflation.  Everything costs more as the money supply expands.  Think of it as, what did a Toyota Corolla cost in 2010 or even a loaf of bread, or a gallon of gasoline?  Maybe houses are cheap relative to how much everything else costs and what people earn “i.e. wages.”

Nope, it’s a good question about adjusting for inflation, but clearly, even when adjusting for inflation, housing has never been more expensive.  

Now, what about mortgage rates?  Mortgage rates have gone down for decades and the cost of borrowing (up until March 2022) has never been lower.  Since virtually every owner occupant buyer finances a house, if we adjust for mortgage rates as well, maybe we will see housing in Denver in the last few years was a relative value.  

Well, there is a chart for that too, and it tells a similar story:

What this graph tells us is how home prices in Denver, when reflected as payments, the past few years (even when adjusted for inflation and for the low mortgage rates) compare to other years and times in history.  There has never been a period of time where payments for houses has been higher, and it’s by a significant margin.  As an example, in the run-up to the GFC in 2006-2008, some people who were not able to sell their homes, who were “underwater” were able to rent out their homes, and either cover their nut or not take too huge a monthly loss, and sell later on once the market recovered in 2012+.  I know several people in this camp.  

Today, payments are so high, that the achievable rent in many cases would not come close to covering the owner’s nut, lessening the chances that people could ride out a situation where the nominal value had fallen sharply, but where they could cover the mortgage in a case where they had to vacate the house (and couldn’t sell-forced to rent it).  

As you can see, we’re in uncharted territory with regard to cost of housing in Denver.  

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About Jeff Summerhill

Jeff is equally passionate about the x's and o's of real estate, and the emotional, more heart-felt side of real estate like people, places, and design. He enjoys getting up to the mountains and skiing, hiking, and biking whenever time permits.

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